The second-quarter loss Palm reported Thursday afternoon was narrower than the one it reported last year, but still fell far short of what Wall Street had been expecting. The smartphone maker lost 37 cents a share for the period on sales of $302 million. Analysts had been expecting a net loss of 32 cents per share on revenue of $266.2 million.

Palm (PALM) did manage to ship a total of 783,000 smartphone units during the quarter, though, a five percent decrease from last quarter, but a year-over-year increase of 41 percent. That said, the company actually sold only 573,000 units, down 29 percent from the previous quarter and down four percent year-over-year. Seems the launch of the Pixi wasn’t quite as successful as Palm had hoped.

“We are continuing to execute strongly against our long-term strategy with the delivery of Palm Pixi, the new carrier launches completed this quarter, and the upcoming opening of Palm’s full developer program,” said Jon Rubinstein, Palm’s chairman and chief executive officer.

“We’re still in the early stages of a long race,” Rubinstein added, “and we’re energized by the opportunity to compete in this exciting market. We remain confident that Palm’s innovative product design capabilities, integrated cloud services and the differentiated and delightful Palm webOS experience will provide the foundation for our sustained success.”

Once again, Palm did not break out unit sales of the Pre or Pixi in its earnings release, below. At $11.26, Palm shares are down 3.92 percent in after-hours trading.

Palm Reports Q2 FY 2010 Results

SUNNYVALE, Calif.– Palm, Inc. (NASDAQ: PALM) today reported that total revenues in the second quarter of fiscal year 2010, ended Nov. 27, 2009, were $78.1 million. Gross profit was $5.5 million, and gross margin was 7.0 percent. These results include the effects of subscription accounting applied to Palm(R) webOS(TM) products as required by GAAP.(1) In accordance with this methodology, revenues and direct cost of revenues for Palm webOS products (currently Palm Pre(TM) and Palm Pixi(TM) smartphones) are deferred and recognized over the products’ estimated economic lives.

To facilitate comparisons to Palm’s historical results, Palm has included non-GAAP adjusted measures, which exclude the impact of subscription accounting, stock-based compensation and other items detailed later in this release. The company believes this information will help investors better evaluate its current period performance and trends in its business.

Non-GAAP Adjusted Revenues in the second quarter totaled $302.0 million, non-GAAP Adjusted Gross Profit was $77.3 million and non-GAAP Adjusted Gross Margin was 25.6 percent.

“We are continuing to execute strongly against our long-term strategy with the delivery of Palm Pixi, the new carrier launches completed this quarter, and the upcoming opening of Palm’s full developer program,” said Jon Rubinstein, Palm’s chairman and chief executive officer. “We’re still in the early stages of a long race, and we’re energized by the opportunity to compete in this exciting market. We remain confident that Palm’s innovative product design capabilities, integrated cloud services and the differentiated and delightful Palm webOS experience will provide the foundation for our sustained success.”

The company shipped a total of 783,000 smartphone units during the quarter, representing a 5 percent decrease from the first quarter of fiscal year 2010 and a year-over-year increase of 41 percent compared to the second quarter of fiscal year 2009. Smartphone sell-through for the second quarter was 573,000 units, down 29 percent from the first quarter of fiscal year 2010 and down 4 percent year-over-year.

On a GAAP basis, net loss applicable to common stockholders for the second quarter of fiscal year 2010 was $(85.4) million, or $(0.54) per diluted common share. This compares to a net loss applicable to common stockholders for the second quarter of fiscal year 2009 of $(508.6) million or $(4.64) per diluted common share. The company’s second quarter of fiscal year 2009 results included a non-cash charge with a net impact of $396.7 million to the tax provision pertaining to the increase of the valuation allowance for the Company’s U.S. deferred tax assets.

The company’s net loss applicable to common stockholders on a GAAP basis reflects accounting guidance, effective in the first quarter of fiscal year 2010, which requires the anti-dilutive provisions of Palm’s series C preferred shares and related warrants to be treated as derivatives for financial reporting purposes. The fair value of the derivatives were estimated as of the first day of fiscal year 2010 and are marked to market on a quarterly basis, with any change in value reflected in the company’s financial results for the period. The series C derivatives balance was $178.7 million at the end of the second quarter of fiscal year 2010 compared to $235.0 million at the end of the first quarter of fiscal year 2010. This reduction in fair value resulted in a $56.3 million non-cash gain on series C derivatives and was reflected in the company’s second quarter GAAP financial results. With regard to the series C derivatives, any future increases in Palm’s stock price from period to period will be reflected as a non-cash loss on these derivatives in the company’s financial results, and any future decreases will be reflected as a non-cash gain in the company’s financial results.

Non-GAAP Net Loss for the second quarter of fiscal year 2010 was $(59.6) million, or $(0.37) per diluted share. This compares to a non-GAAP Net Loss for the second quarter of fiscal year 2009 of $(80.2) million, or $(0.73) per diluted share.

Earnings before interest, taxes, depreciation and amortization, or EBITDA, for the second quarter of fiscal year 2010 totaled $(70.1) million. EBITDA, adjusted to exclude the impact of subscription accounting, stock-based compensation, net other income (expense), restructuring charges and a gain on series C derivatives, or Adjusted EBITDA, totaled $(48.3) million.

The company’s cash, cash equivalents and short-term investments balance was $590.0 million at the end of the second quarter of fiscal year 2010. This includes net proceeds of approximately $360 million from the company’s public equity offering, which closed on Sept. 23, 2009. Cash from operations for the second quarter of fiscal year 2010 was $16.7 million.

Palm may periodically provide new software features free of charge to customers of its Palm webOS products and currently recognizes Palm webOS product revenues and related standard cost of revenues on a subscription basis based on the applicable product’s estimated economic life, which is currently 24 months. The company records deferred revenues and deferred cost of revenues on its balance sheet, and amortizes them into earnings on a straight-line basis over the estimated economic product life.

Palm announced today that it expects to early adopt two recently released accounting standards related to revenue recognition, Accounting Standards Update (“ASU”) No. 2009-13 and ASU No. 2009-14, effective for its third quarter of fiscal year 2010. These accounting changes will result in a substantial portion of Palm webOS product revenues being recognized upon delivery. The remaining Palm webOS revenues, which are related to future services and deliverables, will be recorded as deferred revenues on the company’s balance sheet, and amortized into earnings on a straight-line basis over the estimated economic product life, which is currently 24 months. Under the new standards, all related cost of revenues will be recognized upon delivery. This change in accounting will reduce the amount of revenues that Palm will defer on its balance sheet but will have no impact on cash flows and does not change how Palm accounts for Palm OS(R) products, like the Centro(TM), or its Treo(TM) line. Consistent with the company’s past practice, Palm will continue to provide non-GAAP, adjusted measures that exclude the impact of deferred revenue accounting, stock-based compensation and other items as appropriate.

In a note to investors this morning, Pali analyst Walter Piecyk says he’s not buying predictions about Sprint (S) returning to growth in 2010. Sure, the company is improving post-paid subscriber losses, says Piecyk, but not as quickly as it needs to. And its prepaid business, which already faces a fair bit of competition, will be confronted with even more competition next year.

“Over the past six months our concerns have been rising over the slow pace of change at Sprint and what we view as lost opportunities for growth, but we maintained our Buy rating due to the low valuation on the stock and the depressed expectations of investors,” Piecyk writes.

“Those concerns increased in recent months as the pre-paid business, which Sprint has been accessing for growth, became more competitive and Verizon began executing on a more open device strategy,” the analyst adds. “In the past few weeks, investors have become more optimistic about positive post-paid signs early in Q4 and Sprint’s prospects of even stronger pre-paid results in 2010, in the face of increasing competition.”

In contrast, Piecyk notes that “We are less confident about those trends and as we model out a more competitive market in 2010 for all our companies it becomes evident to us that Sprint will be challenged to stabilize EBITDA. Faced with negative catalysts in the months ahead and the challenge of appropriately valuing a company whose EBITDA is in perpetual decline, we believe now is the right time to downgrade the stock to Neutral.”

Wall Street, then, isn’t underestimating Sprint’s prospects for 2010. It’s overestimating them–or at least it certainly was yesterday.

“For 2010, we expect post-paid losses to be pared by 35% to 2.3 million subs lost compared to our prior estimate of less than 2 million subs lost in that year,” Piecyk concludes. “While pre-paid net adds might offset the losses or even top post-paid losses in Q4 we expect the total customer base to decline by 700,000 in 2010.”

J Moses, who co-founded the company in 1998, left in June, as did Michael McCracken, his longtime COO. The company is currently being run by Hearst Interactive president Ken Bronfin.

I’ve heard conflicting reports about the impetus behind Moses’s departure. It’s certainly not unusual for top executives to leave a company within a couple of years of an acquisition.

But UGO, which competes for eyeballs and ad dollars with heavyweights like CBS’s (CBS) GameSpot and News Corp.’s (NWS) IGN, seems to have had trouble moving the needle since magazine giant Hearst picked it up: Web measurement service comScore (SCOR) says UGO’s traffic has bounced around in the 10 million to 12 million unique visitors per month range–even after it acquired rival site 1up.com from Ziff Davis Gaming Group last January (click chart to enlarge).
I’ve reached out to Moses, but haven’t heard back. Here’s Hearst’s description of what happened:

Moses told UGO employees at a meeting at UGO on June 16 that after two years, he was leaving the company, having fulfilled his duties there.  At the meeting, we thanked him for his dedication to the company and announced that we would begin conducting a search for a replacement. We are committed to the future growth of UGO and believe in its future success. Ken Bronfin, president, Hearst Interactive Media, and his team are managing the company in the interim.

At the time of the Hearst deal, UGO was generating Ebitda of $6 million on revenue of $30 million, according to this Forbes story.

The big picture: Even though Facebook’s official valuation has slid from $15 billion–November 2007, when Microsoft (MSFT) invested–to $10 billion, Zuckerberg is OK with that, arguing that 1) that deal was done at the peak of the market and 2) the pact was never really a financial deal, but a way for Microsoft to partner up with Facebook–and, though he didn’t say it, to box out Google (GOOG). That sounds pretty reasonable.

Zuckerberg’s main talking points were that his company didn’t need the money, but it sure was nice to have, both to fund growth and make any M&A easier to pull off. And when it came to his new partners, he argued that DST’s existing portfolio, which includes several other social networks, would provide models/examples for his company as it continued to expand outside the U.S.

Earlier:

Facebook and its newest investors Digital Sky Technologies, are holding a teleconference to discuss the $200 million at 10 billion valuation deal the two parties just announced. I’ll be covering the call live.

Call starting “momentarily.”

On the call: Facebook Mark Zuckerberg, DST CEO Yuri Milner. Also, via phone (from D7!): Facebook COO Sheryl Sandberg and DST’s Alexander Tamas.

Zuckerberg reading statement that more or less tracks press release: “Advertising product” improving, “our business is doing really well” and we’re on track to create a “nice” business, and that’s why investors want in. DST approached us, has interesting profile and experience and insight into social networks. “We found their thinking and their leadership to be really impressive.”

Money provides “cash buffer” to support our continued growth, also possible other moves. No specific plans to talk about “but nice to have flexibility.”

Milner: “I realize not all the participants on the call are familiar with us.” Goes over DST portfolio. “We have now started to actively expand abroad.” We’re a holding company, have raised and invested more than $1 billion since 2005. Rattling off portfolio companies now.

Q&A:

What does this mean for possible IPO? Zuckerberg: “Our approach to financing has really been that we want to take money and work with partners”…”for a lot of start-ups, you get the feeling that the IPO is really the end goal…that’s not the case for us…we’re not rushing toward it…that’s really all I have to say about that today.”

What’s valuation for common stock? Zuckerberg: No comment. “There are different transactions that we’ve structured differently…we hope that there will be different things in the future…probably sometime in the next few months.”

What does this say about Microsoft’s $15 billion valuation? Zuckerberg: We did that deal at the peak of the market. That was part of a broader relationship. That investment was just one piece of it. This is also a relationship that we’re forming with DST…we hope we will work with other things over time.

“We feel really good about the progress we made…we feel this is  a good and fair valuation for us.” The Microsoft deal was at peak of market and was a strategic deal. “The world was in a pretty different place at that time.”

The international audience is 70 percent of our users. How do you monetize that? Zuckerberg: I have a few things to say, but want Yuri to talk, too. Milner: We have invested in five social networks in Europe. They have been able to monetize better than Facebook because they’re further along the curve than Facebook, which is a global company. But we think that Facebook will improve. Money will come from micropayments and advertising.

Zuckerberg: We can do advertising and have been experimenting with payments. Social networks in DST’s portfolio all monetize in different ways. Each is doing well, with a different model. We’re still growing. Online and direct advertising are growing the quickest, but over time, we expect to be able to build out a large number of these things.

What is your ad revenue going to be? Zuckerberg: A couple of months ago, we felt that everyone outside the company was underestimating our performance. We’ve been EBITDA-profitable for five straight quarters coming on six. Revenue growth has been 70 percent. Cash-flow positive sometime in 2010. That’s important because it means this investment is pure buffer. I realize those aren’t absolute numbers, but those are the ones we’re talking about.

Will DST be involved in management? Milner: We have our own businesses to run. We’ll keep in touch.

Questions about micropayments. Zuckerberg: We’ve tested a lot of things. It’s not a big part of our business, could be greater one day. They create a lot of value for users, and there are ways to monetize them. I’m looking forward to learning how these models are working.

Please talk about common stock/employee stock purchase plans. Zuckerberg: Going back to first question re. IPO. We want to make sure that we can continually make it so employees can be focused on the long term. We felt that if we let people have a little bit of liquidity, it can take some of the pressure off and let people focus on making company as good as it could be. We started to do this last year and had to hold off. Now we hope to be able to do it again.

Will that be the only way you are allowing employees or ex-employees to sell shares? Zuckerberg: Still talking about.

Is current Facebook ad business to be the main business going forward? Doesn’t mean it will be main business in the long term. You guys know everything that we’re talking about now.

Why aren’t you running big brand ad campaigns? We’re very interested in it. We have a big ad sales team. Building out offices internationally: U.K., France, a few more coming up. We think the best way to serve advertisers is to create ads that people interact with, that are “social and engaging.” I don’t want anyone to think that this isn’t a big part of our business, because it is.

Sandberg: Heavily engaged with brands. Ads specifically designed for Facebook, so they look different and behave differently than other ads on other sites, and that’s a good thing.

Preferred shares–are these are substantially similar to the ones Microsoft bought? Zuckberg: “I’m gonna duck that one.”

Does the company have any debt? Zuckerberg: [pause] There’s been some information that’s been public about debt we have for operating equipment. Beyond that, we do equity deals.

Will you do other investment deals? How many did you look at? Zuckerberg: He doesn’t really answer this question; instead he goes on to praise DST. Milner: We see things that other people don’t see, which is monetization that other social networks have been able to do. So we “kind of feel comfortable with that valuation.”

Is this largest foreign investment in Facebook? Zuckerberg: Um… [pause]. There’s been some public information about other folks we’ve worked with, but I think from reading some of the records you can get the answer to your question.

Other new deals? Zuckerberg: It was really at our option to find someone we were comfortable with. We didn’t feel like we needed to take an investment, and now we feel like we have the buffer we want.

Working on video chat product? More international products? Zuckerberg Yes. There are lots of things like that that we’re working on now. We want the site to be available in every country. We’re not translating the site. Users translate the site themselves. And a lot of the features are universally applicable.

Call finished.

Gabelli & Co. analyst Robert Haley cut his rating on the stock to Hold from Buy on a valuation basis, noting that the stock is up 40 percent year to date. He is bullish on the story long term, but says that with the stock trading at 20x projected 2010 estimates and 10x EBITDA, there are risks, including “a likely CEO transition in the near-medium term.”

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But are investors are celebrating? No, they are not. Instead, they are in a selling frenzy. SIRI shares, in fact, are down 32 cents, or 17 percent, to $1.56, and have now now dropped 42 percent in the last four trading days.

Sirius this morning repeated its previous forecast that the company expects to generate $400 million in synergies in 2009. It expects to post adjusted EBITDA of more than $300 million in 2009, and to reach positive free cash flow–before satellite expenditures–for the full year in 2009.

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Sirius said total synergies, net of costs, in 2009 should be about $400 million. Adjusted EBITDA for the company is expected to be about $300 million. The combined company is expected to be free cash-flow positive before satellite cap ex for the full year 2009.

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Well, just ask Mark Zuckerberg!

This afternoon, at an all-hands meeting held in a Palo Alto, Calif., theater near the social-networking site’s headquarters, the 23-year-old founder was quite voluble on that topic, outlining numbers that a more experienced CEO might think twice about unveiling to a large audience.

With an open dial-in number! Many employees, in fact, were horrified that Zuckerberg would be so blabby about such important financial information. Others loved it.

Most were simply surprised (although, to be fair, Google Co-Founders Larry Page and Sergey Brin used to give a lot of detailed company info to their employees before going public, but in coordination with other execs).

“I can’t believe he was doing it,” said one. “It was really unbelievable.”

Believe it! Some highlights?

Revenue for Facebook for 2007 will be $150 million, as has been widely reported. But for 2008, Zuckerberg projected revenue to be increased to $300 million to $350 million.

More interesting was the news that Facebook would spend $200 million next year on capital expenditures, which is a whole lot of servers.

By the way, more expenses, noted chatty Mark, those employee levels would rise to more than 1,000 in 2008 from 450 now.

And Zuckerberg also said the company’s EBITDA–earnings before interest, taxes, depreciation and amortization and a number widely used by Wall Street as an indication of operating performance–would be $50 million in 2008.

That means the company would have a negative cash flow of about $150 million (EBITDA minus CapEx), rather than break even, as it does now.

But who’s counting? Zuckerberg apparently said he did not care about maintaining EBITDA anyway.

That’s because Facebook collected $300 million in investments recently from Microsoft and other investors, which pegged the valuation of the company at $15 billion.